Jose Is Thinking About Purchasing A Soft Drink Machine And M
Jose Is Thinking About Purchasing A Soft Drink Machine And Placing It
Jose is considering purchasing a soft drink machine and placing it in a business office. The probability that a passerby will make a purchase is 11%, and the profit per soft drink sold is $0.10. He expects 1,363 people to pass by the machine daily. Jose wants to recoup his investment within one year, assuming 250 working days per year, and ignoring taxes and the time value of money. The task is to determine the maximum price he should pay for the machine, and to calculate his expected profit from operating the machine.
Paper For Above instruction
The decision to purchase a soft drink machine involves analyzing both the initial investment cost and the expected profitability over a specified period. To ensure that his investment is worthwhile, Jose must determine the maximum amount he should be willing to pay for the machine, based on the expected profits generated over one year, and also compute his expected profit.
Calculating Expected Revenue per Day
First, we analyze the daily expected profit. There are 1,363 people passing by the machine each day, with an 11% probability that any passerby will purchase a soft drink. The expected number of sales per day is:
\[ \text{Expected sales} = 1,363 \times 0.11 = 149.93 \]
Since each sale yields a profit of $0.10, the expected daily profit is:
\[ \text{Daily profit} = 149.93 \times \$0.10 = \$14.99 \]
Over 250 working days, the total expected profit is:
\[ \text{Total profit} = \$14.99 \times 250 \approx \$3,747.50 \]
Determining the Maximum Purchase Price
Jose requires that he recovers his initial investment within one year. Therefore, the maximum amount he should be willing to pay for the machine, which assures a return equal to the total expected profit, is approximately \$3,747.50.
Conclusion on Investment Decision
Given this analysis, Jose should be willing to pay no more than approximately \$3,747 for the soft drink machine to break even in one year, assuming his expectations hold and the assumptions remain valid.
Expected Profit Calculation
The expected profit from operating the machine, based on the calculations, is approximately \$3,748, rounded to the nearest dollar.
Additional Considerations
While this analysis provides a straightforward financial estimate, it's important to recognize factors such as maintenance costs, potential fluctuations in customer flow, or changes in purchase probability that could influence actual profitability. A more robust analysis might include sensitivity analysis or risk assessments, but for this simplified scenario, these calculations suffice.
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